Markets priced a December increase as close to certain in morning trading, leaving the live bet on whether the Fed moves six weeks sooner. Citi, the last major brokerage forecasting no further moves this year, now expects December. BofA has been calling for October, and Vice Chair for Supervision Michelle Bowman said she feels no urgency.
By Wednesday afternoon, the argument over the Federal Reserve's next rate increase had narrowed to a question of timing, and most of the Street's economists were lining up on the later date.
The numbers behind the bet
Before the 8:30 a.m. inflation report, CME FedWatch data put the chance of a quarter-point increase at the Oct. 27 and 28 meeting at about 22%. Readings after the release ranged from about 44% to 53% during the morning. Later in the day, CME data showed those odds easing to less than 40%. In morning trading, markets also priced roughly a 94% chance of an increase by the December meeting.
Those prices describe a market that treats another hike as nearly settled and is arguing over the date. The September inflation report moved the timing debate. It did not create the expectation of an increase, which was already priced.
Citi changes sides
Citigroup was the outlier until Wednesday. Alone among major brokerages, it had forecast no further Fed moves this year. After the inflation data it switched to a 25 basis point increase in December, followed by a pause, and said it does not expect a rate cut until June 2027.
Others reached similar conclusions. Osaic chief market strategist Philip Blancato said the report "puts the Federal Reserve very much in play for December." Principal Asset Management's Seema Shah went a step further: "We expect further hikes in December and early 2027 before the Fed can be confident that inflation is on a sustained path back to target."
The exception is BofA. Its economists have forecast increases in both October and December since the Fed's September move and reaffirmed that view earlier this week. Goldman Sachs moved its own call from October to December on Oct. 1.
The official signal
Bowman, speaking in Bangkok during the International Monetary Fund and World Bank meetings, made the case for patience. "I don't feel any urgency for taking further action at this point, we really need to take some time and understand how things will evolve," she said, referring to September's increase, which took the target range to 3.75% to 4.00%. Boston Fed President Susan Collins had said a day earlier that she expects rates to rise somewhat further before year-end, without naming a meeting.
Market implications
The October camp's newest evidence arrived after Citi's call: the Beige Book, released at 2 p.m., found price growth accelerating in four of 12 districts and every district citing higher oil costs. The December camp has Bowman, flat employment in most districts and a Street that, apart from BofA, has largely settled on the later date.
What to watch
The discriminating signal is whether any other large forecaster joins BofA in calling for October after Thursday's producer price and retail sales data. A second major bank moving to October would suggest the October odds have room to climb back toward the morning's highs. If forecasts hold at December while futures drift lower, the market will have accepted the Street's timeline before Fed Chairman Kevin Warsh speaks in Bangkok late this week.